ANALYSING CONSUMER AND BUSINESS MARKETS

BY: TO:KOMAL GUPTA PROF. KESHAV SHARMA

ANALYSING CONSUMER AND BUSINESS MARKETS

CONTENTSWHAT INFLUENCES CUSTOMER BEHAVIOURKEY PSYCHOLOGICAL PROCESSESTHE BUYING DECISION PROCESSORGANIZATIONAL BUYINGPARTICIPANTS IN THE BUSINESS BUYING PROCESSTHE PURCHASING/PROCUREMENT PROCESSSTAGES IN THE BUYING PROCESSMANAGING BUSINESS-TO-BUSINESS CUSTOMER REALATIONSHIPSINSTITUTIONAL AND GOVERNMENTAL MARKETS

WHAT IS CONSUMER BEHAVIOURConsumer behavior is the study of how individuals, groups, and organizations select, buy, use, and dispose of goods, services, ideas, or experiences to satisfy their needs and wants.

Marketers must fully understand both the theory and reality of consumer behavior.

WHAT INFLUENCES CONSUMER BEHAVIOURA consumers buying behavior is influenced by cultural, social, and personal factors. Of these, cultural factors exert the broadest and deepest influence.

CULTURAL FACTORSCulture is the fundamental determinant of a persons wants and behavior. Marketers must closely attend to cultural values in every country to understand how to best market their existing products and find opportunities for new products. Each culture consists of smaller subcultures that include nationalities, religions, racial groups, and geographic regions. Virtually all human societies exhibit social classes, relatively homogeneous and enduring divisions in a society, hierarchically ordered and with members who share similar values, interests, and behavior. Social classes are defined by seven ascending levels: (1) lower lowers, (2) upper lowers, (3) working class, (4) middle class, (5) upper middles, (6) lower uppers, and (7) upper uppers.

SOCIAL FACTORSIn addition to cultural factors, social factors such as reference groups, family, and social roles and statuses affect our buying behavior.REFERENCE GROUPS A persons reference groups are all the groups that have a direct (face-to-face) or indirect influence on their attitudes or behavior. Groups having a direct influence are called membership groupsPeople are also influenced by groups to which they do not belong. Aspirational groups are those a person hopes to join; dissociative groups are those whose values or behavior an individual rejects.An opinion leader is the person who offers informal advice or information about a specific product or product category.Marketers try to reach them by identifying their demographic and psychographic characteristics, identifying the media they read, and directing messages to them.CliquesCliques are small groups whose members interact frequently.

3. FAMILY The family is the most important consumer buying organization in society, and family members constitute the most influential primary reference group. There are two families in the buyers life. The family of orientation consists of parents and siblings. A more direct influence on everyday buying behavior is the family of procreationnamely, the persons spouse and children. 4. ROLES AND STATUSA role consists of the activities a person is expected to perform. Each role in turn connotes a status. People choose products that reflect and communicate their role and their actual or desired status in society.

PERSONAL FACTORSPersonal characteristics that influence a buyers decision include: age and stage in the life cycleoccupation and economic circumstances,personality and self-concept, and lifestyle and values.

KEY PSYCHOLOGICAL PROCESSES

MODEL OF CONSUMER BEHAVIOUR

Four key psychological processesmotivation, perception, learning, and memoryfundamentally influence consumer responses.

1. MOTIVATION: It is influenced by three theories: Freud Psychological forces that shaped peoples behavior are unconscious.Maslow People are driven by different needs at different times. According to Maslow, human needs are arranged in a hierarchy from most to least pressing.Herzberg Developed two-factor theory that distinguishes dissatisfiers (factors that cause dissatisfaction) from satisfiers (factors that cause satisfaction). Contd.

MASLOWS HIERARCHY OF NEEDS

2. PERCEPTION: It is the process by which we select, organize, and interpret information inputs to create a meaningful picture of the world.Three perceptual processes:SELECTIVE ATTENTIONSELECTIVE DISTORTION SELECTIVE RETENTION3. LEARNING: It induces changes in our behavior arising from experience. Learning theorists believe learning is produced through the interplay of drives, stimuli, cues, responses, and reinforcement. 4. MEMORY: Cognitive psychologists distinguish between short-term memory (STM)a temporary and limited repository of informationand long-term memory (LTM)a more permanent, essentially unlimited repository. All the information and experiences we encounter as we go through life can end up in our long-term memory.

Selective distortion is the tendency to interpret information in a way that fits our preconceptionsBecause of selective retention, were likely to remember good points about a product we like and forget good points about competing products. Selective retention again works to the advantage of strong brands12

The Buying Decision ProcessThe consumer typically passes through five stages: problem recognition, information search, evaluation of alternatives, purchase decision, and post-purchase behavior.

The buying process starts when the buyer recognizes a problem or need triggered by internal or external stimuli.An internal stimulus is triggered by a persons normal needs hunger, thirst when the need rises to a threshold level.A need can also be aroused by an external stimulus, such as seeing a commercial for a vacation. A person then begins to consider the possibility of taking a vacation.

PROBLEM RECOGNITION

INFORMATION SEARCHConsumers often search for limited amounts of information. We can distinguish between two levels of engagement in the search. The milder search state is called heightened attention. At this level a person simply becomes more receptive to information about a product. At the next level, the person may enter an active information search: looking for reading material, phoning friends, going online, and visiting stores to learn about the product.

EVALUATION OF ALTERNATIVESNo single process is used by all consumers, or by one consumer in all buying situations. It is important that marketers understand that:The consumer is trying to satisfy a need.The consumer is looking for certain benefits from the product solution.The consumer sees each product as a bundle of attributes with varying abilities to deliver the benefits.

BELIEFS AND ATTITUDSA belief is a descriptive thought that a person holds about something. Attitudes are a persons enduring favorable, or unfavorable evaluations, emotional feelings, and action tendencies toward some object or idea

EXPECTANCY-VALUE MODELThe expectancy-value model of attitude formation posits that consumers evaluate products and services by combining their brand beliefsthe positives and negativesaccording to importance.

Model A = 0.4 (8) + 0.3(9) + 0.2(6) + 0.1(9) = 8.0Model B = 0.4 (7) + 0.3(7) + 0.2(7) + 0.1(7) = 7.0Model C = 0.4(10) + 0.3(4) + 0.2(3) + 0.1(2) = 6.0Model D = 0.4 (5) + 0.3(3) + 0.2(8) + 0.1(5) = 8.0

PURCHASE DECISIONSAfter a consumer has reached a purchase intention, up to five sub-decisions may need to be made. The brand, the dealer (where), quantity, timing (when), and payment method.Non-Compensatory Models:Consumers often use mental shortcuts called heuristics or rule of thumb in the decision process.We highlight three heuristics here.1. Using the conjunctive heuristic, the consumer sets a minimum acceptable cutoff level for each attribute and chooses the first alternative that meets the minimum standard for all attributes. 2. With the lexicographic heuristic, the consumer chooses the best brand on the basis of its perceived most important attribute. 3. Using the elimination-by-aspects heuristic, the consumer compares brands on an attribute selected probabilisticallywhere the probability of choosing an attribute is positively related to its importanceand eliminates brands that do not meet minimum acceptable cutoffs.

POST PURCHASE BEHAVIOURMarketers must monitor post-purchase satisfaction, post-purchase actions, and post-purchase product uses and disposal.

POSTPURCHASE SATISFACTION: Satisfaction is a function of the closeness between expectations and the products perceived performance. If performance falls short of expectations, the consumer is disappointed; if it meets expectations, the consumer is satisfied; if it exceeds expectations, the consumer is delighted..

POSTPURCHASE ACTIONS: A satisfied consumer is more likely to purchase the product again and will also tend to say good things about the brand to others. Dissatisfied consumers may abandon or return the product. They may take public action by complaining to the company, going to a lawyer, or complaining to other groups (such as business, private, or government agencies). Private actions include deciding to stop buying the product (exit option) or warning friends (voice option).

POSTPURCHASE USES AND DISPOSALS: Marketers should also monitor how buyers use and dispose of the product. A key driver of sales frequency is product consumption ratethe more quickly buyers consume a product, the sooner they may be back in the market to repurchase it.

ORGANIZATIONAL BUYINGIt is the decision-making process by which formal organizations establish the need for purchased products and services and identify, evaluate, and choose among alternative brands and suppliers

THE BUSINESS MARKET VERSUS THE CONSUMER MARKETBusiness marketers contrast sharply with consumer markets in some ways. They have:Fewer, larger buyers.Close suppliercustomer relationshipProfessional purchasingMultiple buying influencesMultiple sales callsDerived demandInelastic demandFluctuating demandGeographically concentrated buyers.Direct purchasing

BUYING SITUATIONSThree types of buying situations are the straight re-buy, modified re-buy, and new task.Straight re-buy: In a straight re-buy, the purchasing department reorders supplies such as office supplies and bulk chemicals on a routine basis and chooses from suppliers on an approved list.Modified re-buy: The buyer in a modified re-buy wants to change product specifications, prices, delivery requirements, or other terms. New task: A new-task purchaser buys a product or service for the first time.

Participants in the BusinessBuying ProcessMembers of the organization play the following seven roles in the purchase decision process.InitiatorsUsers or others in the organization who request that something be purchased.UsersThose who will use the product or service. In many cases, the users initiate the buying proposal and help define the product requirements.InfluencersPeople who influence the buying decision, often by helping define specifications and providing information for evaluating alternatives. Technical personnel are particularly important influencers.DecidersPeople who decide on product requirements or on suppliers.ApproversPeople who authorize the proposed actions of deciders or buyers.BuyersPeople who have formal authority to select the supplier and arrange the purchase terms. Buyers may help shape product specifications, but they play their major role in selecting vendors and negotiating.GatekeepersPeople who have the power to prevent sellers or information from reaching members of the buying center.

THE PURCHASING/PROCUREMENT PROCESSIn principle, business buyers seek to obtain the highest benefit package (economic, technical, service, and social) in relation to a market offerings costs. To make comparisons, they will try to translate all costs and benefits into monetary terms. A business buyers incentive to purchase will be a function of the difference between perceived benefits and perceived costs.The marketers task is to construct a profitable offering that delivers superior customer value to the target buyers.

STAGES IN THE BUYING PROCESSThere are eight stages in the buying process.Problem RecognitionGeneral need descriptionProduct specificationSupplier searchProposal solicitationSupplier selectionOrder-routine specificationPerformance review

PROBLEM RECOGNITIONThe buying process begins when someone in the company recognizes a problem or need that can be met by acquiring a good or service. The recognition can be triggered by internal or external stimuli. The internal stimulus might be a decision to develop a new product that requires new equipment and materials, or a machine that breaks down and requires new parts. Or purchased material turns out to be unsatisfactory and the company searches for another supplier, or lower prices or better quality. Externally, the buyer may get new ideas from ads, telemarketing, etc.

GENERAL NEED DESCRIPTION AND PRODUCT SPECIFICATIONNext, the buyer determines the needed items general characteristics and required quantityBusiness marketers can help by describing how their products meet or even exceed the buyers needs.The buying organization now develops the items technical specifications. Often, the company will assign a product-value-analysis engineering team to the project. Product value analysis (PVA) is an approach to cost reduction that studies whether components can be redesigned or standardized or made by cheaper methods of production without adversely impacting product performance.

SUPPLIER SEARCHThe buyer next tries to identify the most appropriate suppliers.This includes E-procurementLead Generation

PROPOSAL SOLICITATIONThe buyer next invites qualified suppliers to submit proposals. If the item is complex or expensive, the proposal will be written and detailed. After evaluating the proposals, the buyer will invite a few suppliers to make formal presentations.

SUPPLIER SELECTIONBefore selecting a supplier, the buying center will specify and rank desired supplier attributes.

ORDER ROUTINE SPECIFICATIONAfter selecting suppliers, the buyer negotiates the final order, listing the technical specifications, the quantity needed, the expected time of delivery, return policies, warranties, and so on.Many industrial buyers lease heavy equipment such as machinery and trucks. The lessee gains a number of advantages: the latest products, better service, the conservation of capital, and some tax advantages. In the case of maintenance, repair, and operating items, buyers are moving toward blanket contracts rather than periodic purchase orders.

Blanket contractis a type ofcontractthat covers a wide range of products and services. It covers a group of products, goods, or services that are identified by the parties to thecontract. Thecontractis for a fixed period.32

PERFORMANCE REVIEWThe buyer periodically reviews the performance of the chosen supplier(s) using one of three methods. The buyer may contact end users and ask for their evaluationsrate the supplier on several criteria using a weighted-score method, oraggregate the cost of poor performance to come up with adjusted costs of purchase, including price. The performance review may lead the buyer to continue, modify, or end a supplier relationship.

MANAGING BUSINESS-TO-BUSINESS CUSTOMER RELATIONSHIPSTo improve effectiveness and efficiency, business suppliers and customers are exploring different ways to manage their relationships.Closer relationships are driven in part by supply chain management, early supplier involvement, and purchasing alliances. Cultivating the right relationships with business is paramount for any holistic marketing program.

CLASSIFICATION OF BUYER-SUPPLIER RELATIONSHIPSThere are eight categories of buyer-supplier relationships.Basic buying and sellingThese are simple, routine exchanges with moderate levels of cooperation and information exchanges. Bare bonesThese relationships require more adaptation by the seller and less cooperation and information exchange.Contractual transactionThese exchanges are defined by formal contract and generally have low levels of trust, cooperation, and interaction.Customer supplyIn this traditional custom supply situation, competition rather than cooperation is the dominant form of governance.Cooperative systemsThe partners in cooperative systems are united in operational ways, but neither demonstrates structural commitment through legal means or adaptation.CollaborativeIn collaborative exchanges, much trust and commitment lead to true partnership.Mutually adaptiveBuyers and sellers make many relationship-specific adaptations, but without necessarily achieving strong trust or cooperation.Customer is kingIn this close, cooperative relationship, the seller adapts to meet the customers needs without expecting much adaptation or change in exchange.

INSTITUTIONAL AND GOVERNMENT MARKETSThe institutional market consists of schools, hospitals, nursing homes, prisons, and other institutions that must provide goods and services to people in their care. Many of these organizations are characterized by low budgets and captive clienteles. The buying objective here is not profit, nor is cost minimization; the sole objective is reputation.In most countries, government organizations are a major buyer of goods and services. They typically require suppliers to submit bids and often award the contract to the lowest bidder. In some cases, they will make allowance for superior quality or a reputation for completing contracts on time. Governments will also buy on a negotiated contract basis, primarily in complex projects with major R&D costs and risks and those where there is little competition.